In a Nutshell

  • Detroit and other school districts across the state face mounting capital spending needs.
  • Michigan’s system for financing school building construction and other capital spending relies almost entirely on local property taxes.
  • District disparities in property wealth means that some schools have new, modern facilities while others have old, antiquated buildings.

Recent news that the Detroit Public Schools Community District faces over $530 million in unmet capital improvement needs for its nearly 100 operating school buildings sheds light on a critical challenge facing many public school districts across the state; lack of adequate and equitable funding for capital spending. Adequacy and equity are two principles that guided creation of Michigan’s current funding system for school operations as part of Proposal A of 1994, and guide school funding across the United States.

Photo by Thomas Hawk, via Flickr

Detroit’s unmet capital needs relate directly to Michigan’s capital funding system and the growing disparity in property wealth. Improving the adequacy and equity in Michigan’s school capital funding system will require a greater state role and additional state resources, similar to what occurred with the design and implementation of Proposal A.

Two different systems with very different results

Michigan operates two very distinct school funding systems; one provides operating funds to K-12 schools while the other one is for school construction and other capital spending. While responsibility for operating funding was shifted from local property taxes to state-levied taxes with the adoption of Proposal A in 1994, revenues for school construction and other capital projects were unaffected, and continue to come almost entirely from local property taxes, approved by local voters.  

One objective of centralizing school operating funding at the state level was to reduce per-pupil funding disparities across districts and to ensure its sufficiency. (That’s the adequacy part.) The principle of equity means that the state provides a similar level of operational funding regardless of where a student lives. Progress towards greater equity has been achieved; the difference between the maximum and minimum state-supported per-pupil foundation grants has been reduced by over 75 percent since Proposal A. In the 1994-95 school year, this difference was $2,300 per pupil compared to $538 per pupil for the upcoming 2018-19 school year.

Previously low-funded districts are now equipped with more adequate levels of financial resources to improve student instruction and other programming.

Inequities in capital funding

The local property tax remains the primary funding mechanism for schools’ capital needs. Because the value of taxable property varies dramatically across school districts, Michigan’s wealthiest districts can raise far more from a mill of taxation (a mill means a dollar of taxation for every $1,000 of property value) than poorer districts. And the disparities are stark.

Michigan’s locally controlled capital funding system results in inadequate facilities for many students. Some attend school in brand-new buildings equipped with the most up-to-date instructional technologies and complementary, state-of-the-art facilities for art, music, and extracurricular programs. Other students are taught in buildings over 100 years old that have leaking roofs and failing infrastructure, ill equipped for modern technology.

Also, Michigan’s school capital financing system treats taxpayers inequitably.  Citizens who reside in school districts with smaller tax bases must pay very high property tax rates to raise relatively small amounts of revenue to finance bonds for school construction. In more wealthy districts, higher property values means that taxpayers pay relatively low rates and generate far more funding to repay the bonds.

Unequal asset distribution and unmet needs; the “haves” and the “have nots”

In 2005, the Citizens Research Council examined the distribution of school capital stock and unmet capital needs across all traditional public school districts (excluding charter schools).  Our findings from that report are summarized in the table below. (Note: school district groupings are broken into quintiles by taxable value per pupil.)

Quintile Taxable Value Per Pupil Capital Stock Per Pupil Unmet Need Per Pupil % of Statewide Need
1 $69,172 $15,384 $8,172 34%
2 121,088 18,958 5,587 14%
3 150,540 20,523 4,979 19%
4 204,317 20,934 4,166 19%
5 308,284 23,406 3,677 14%

Our analysis showed dramatic inequalities in wealth (taxable value per pupil) across districts, which was not surprising. Also not surprising, given the basis of the capital financing scheme, it was revealed that the value of the school buildings and other facilities (e.g, swimming pools, performing art centers, etc.) varied directly with the district’s wealth. Students in the richest 20 percent of school districts (quintile 5) had access to 50 percent more capital assets than the poorest 20 percent of students (quintile 1). Capital assets were not equitably distributed across Michigan districts.

Similarly, we found that the unmet need for capital spending was not evenly distributed.Not surprisingly, the poorest districts had the highest needs. The average need in the poorest district (quintile 1) was more than double that of the wealthiest (quintile 5).  In the aggregate, the poorest 20 percent of districts had over one-third of the total statewide need.

Also, our report showed that tax effort varied across districts, creating unequal tax treatment for taxpayers in the state. Taxpayers in the poorest districts paid higher tax rates (average of 8.344 mills) for school capital than taxpayers in the wealthiest districts (average of 3.068 mills).

What to do about this problem?

In 1994, Michigan took the bold step to address the inequities associated with per-pupil funding, leaving until tomorrow many of the same disparities with capital spending. Nearly 25 years later, little has been done to reform how school districts across the state finance new buildings and other capital projects. The “go-it-alone” approach, based on local property wealth, has left many districts with antiquated, outdated, and deteriorating facilities, while others provide their students with modern, technologically-advanced learning environments.

Our research suggests a number of policy alternatives that the state might adopt to improve the way school construction is financed. These range from minor modifications of current policies to a major overhaul of financing responsibility with full state assumption of responsibility for financing school capital.

  • The School Bond Loan Fund could be modified to provide additional support by forgiving interest payments, subsidizing the revenue yield of locally levied mills, or providing direct grants to local school districts for capital projects.
  • The state could issue bonds to raise the amounts necessary to finance the construction of adequate educational facilities in targeted school districts.
  • The state could provide per-pupil grants to support capital spending, in addition to the operating grants currently provided.
  • A power equalization program could subsidize (up to a minimum guaranteed level) the per-pupil yield of each local mill levied.
  • The state could pay off the existing debt of local school districts and issue state bonds to finance future projects.    

Each reform has unique characteristics, but they share some common traits. All involve greater state responsibility and the infusion of additional state resources to address the current and growing inequities in school capital infrastructure across Michigan districts.

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